Question

One year​ ago, your company purchased a machine used in manufacturing for $ 90 000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $ 150 000 today. The cca rate applicable to both machines is 40 %​; neither machine will have any​ long-term salvage value. You expect that the new machine will produce earnings before​ interest, taxes,​ depreciation, and amortization ​(ebitda​) of $ 60000 per year for the next ten years. The current machine is expected to produce ebitda of $ 22 comma 000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50000. Your​ company's tax rate is 45 %​, and the opportunity cost of capital for this type of equipment is 12 %. Should your company replace its​ year-old machine?

Answer 1

Answer:

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